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Two different accounting procedures that are utilized by businesses as a way to evaluate their inventory are LIFO (Last In First Out) and FIFO (First In First Out). ABC manufacturer evaluated its finished goods inventory (in $ thousands) for five products using both procedures. Based on the following results, is LIFO more effective in keeping the value of his inventory lower?

ProductFIFO (F)LIFO (L)

1225221

2119100

3100113

4212200

5248245

The 5% level of significance was selected for the t value. The calculated test statistic was 1.93. What is the decision?

A. Reject the null hypothesis and conclude LIFO is more effective.

B. Fail to reject the null hypothesis and conclude LIFO is not more effective.

C. Fail to reject the null hypothesis and conclude LIFO is more effective.

D. Reject the alternate hypothesis and conclude LIFO is more effective.

Solution Description

Two different accounting procedures that are utilized by businesses as a way to evaluate their inventory are LIFO (Last In First Out) and FIFO (First In First Out). ABC manufacturer evaluated its finished goods inventory (in $ thousands) for five products using both procedures. Based on the following results, is LIFO more effective in keeping the value of his inventory lower?